GameStop and Robinhood: The Reason Why Retailers Investors are Moving to DeFi
Traditional finance is full of red tape. There are too many hoops for ordinary mom-and-pop investors to get in. Leave alone the paperwork, the accreditation, and most importantly, the regulatory wall. It may be too high for many to climb over.
However, there is a refreshing paradigm shift. Behind blockchain and decentralization, the age of crypto and smart contracting birthed decentralized finance, or simply DeFi.
What is DeFi?
DeFi is an umbrella term encompassing many facets of financial instruments and products riding on blockchain rails.
At its basics, it is nothing but a replication of instruments or products popular in traditional finance in smart contracting platforms.
Ethereum is the home of DeFi, where over $41 billion of assets remain under management.
The Main Street Revolt: GameStop Edition
The importance of decentralized solutions was brought to the fore by the sagas in the aftermath of WallStreetBets pumping of several stocks, including GameStop (GME).
The revolting of the main street against Wall Street megaliths—and winning, and the subsequent intervention by regulators—reportedly working on White House orders convinced many that the legacy system, with all its trillions, is rigged against them.
At peaks, GameStop stock rallied to over $350, giving the company a mega valuation of over $25 billion.
Meanwhile, the analyst who identified the anomaly made over $48 million from an initial investment of just $56k.
However, as the squeeze went on, leading providers, including Robinhood, placed restrictions on trading, barring retailers from buying the stock, only allowing selling.
Retailers interpreted this as a mitigation attempt by the broker acting on behalf of impacted hedge funds.
Melvin Capital, the weak link hedge fund, lost over $7 billion and had to be bailed out by others.
The Migration to DeFi Protocols
Regardless, this served as a lesson and even a trigger for retailers seeking alternatives in DeFi and crypto.
There are increasing calls for people to exit traditional finance to the untested but yet potent DeFi.
The rapid expansion of the sub-sector’s total value locked (TVL) is enough testament.
Most importantly, it points to crypto’s potential and under-exploration of open finance. As it evolves, it will be a suitable alternative to the rigged but ironically heavily regulated traditional finance serving only the wealthy and powerful.
DeFi is tailored for the main street. It builds on blockchain principles and remains non-custodial.
As such, their protocols lack red-tape and open-source. Regardless of financial muscle, ordinary investors can participate. Also–and crucially for value seekers, the absence of intermediation means lower fees within transparent systems.